{"id":522337,"date":"2010-04-09T13:43:03","date_gmt":"2010-04-09T17:43:03","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/04\/09\/trichet-some-euro-zone-countries-may-need-to-accept-deflation\/"},"modified":"2010-04-09T13:43:03","modified_gmt":"2010-04-09T17:43:03","slug":"trichet-some-euro-zone-countries-may-need-to-accept-deflation","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/522337","title":{"rendered":"Trichet: Some Euro Zone Countries May Need to Accept Deflation"},"content":{"rendered":"

European Central Bank<\/strong> President Jean-Claude Trichet<\/strong> says some countries in the euro zone might have to accept a period of deflation to restore long-term economic growth prospects.<\/p>\n

“Some countries, to regain competitiveness, will have to keep inflation below the EU average,” Mr. Trichet told the Italian paper Il Sole 24 in an interview published Friday<\/a>.<\/p>\n

Asked by the paper whether this means “even accepting a period of deflation, with all the possible social consequences this might have?” Mr. Trichet replied: “Yes.”<\/p>\n

“It is normal that some regions, after growing above the EMU average for some time, and after having accumulated high national inflation, experience a correction and therefore a period of negative inflation, as it is currently happening in Ireland,” Mr. Trichet said.<\/p>\n

The ECB contends that it has avoided deflation for the euro zone as a whole, which is supported by recent data showing annual inflation in the region at about 1.5% in March, though that was probably pushed higher by energy and food prices.<\/p>\n

Yet consumer prices are still falling on an annual basis in Ireland, and economists say other struggling peripheral countries like Portugal, Spain and, to a lesser extent, Greece either face the risk of deflation or at least a lengthy period of very low inflation.<\/p>\n

Mr. Trichet was largely confirming what economists have been saying for months about deflation in some parts of Europe, though as ING Bank economist Carsten Brzeski notes: “he has never been so outspoken in the past.”<\/p>\n

Whatever benefits in the long run in terms of restoring lost competitiveness, deflation (or negative inflation) can be poison for government finances in the short term: A mix of economic growth and modest inflation, or nominal GDP, brings in needed tax revenues and shrinks the debt-to-GDP ratio<\/a>.<\/p>\n

Without nominal GDP, Greece and others will have trouble bringing debt ratios down without still more painful spending cuts and tax hikes.<\/p>\n

As Paul Krugman<\/strong> put it in a New York Times column<\/a> today: “Deflation is a painful process, which invariably takes a toll on growth and employment. So Greece won\u0092t grow its way out of debt. On the contrary, it will have to deal with its debt in the face of an economy that\u0092s stagnant at best. So the only way Greece could tame its debt problem would be with savage spending cuts and tax increases, measures that would themselves worsen the unemployment rate.”<\/p>\n

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European Central Bank President Jean-Claude Trichet says some countries in the euro zone might have to accept a period of deflation to restore long-term economic growth prospects. “Some countries, to regain competitiveness, will have to keep inflation below the EU average,” Mr. Trichet told the Italian paper Il Sole 24 in an interview published Friday. […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-522337","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/522337","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=522337"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/522337\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=522337"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=522337"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=522337"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}